Defense

ILUSORIO V. COURT OF APPEALS

GR No. 139130, NOVEMBER 27, 2002
Facts:Illusorio is a client-depositor of Manila Baking Corporation. He alleges that the bank was negligent in taking care of
his bank deposits because his secretary, Katherine Esteban, was able to withdraw around P119,000 and transfer it to her
own bank account. Esteban was able to do this because, as Illusorios secretary, she was entrusted with his check books and
credit cards whenever he leaves the country.
However, Manila Banking avers that it exercised due diligence in dealing with the withdrawals made by Esteban.
Issue:Whether or not Manila Banking was negligent in handling the account of Illusorio.
Held:No, in fact it was Illusorio who is guilty of negligence. Negligence is the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do. In the present case, it appears that petitioner accorded his
secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements,
including custody and possession of cancelled checks and reconciliation of accounts.
Petitioners failure to examine his bank statements appears as the proximate cause of his own damage. Proximate cause is
that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and
without which the result would not have occurred. In the instant case, the bank was not shown to be remiss in its duty of
sending monthly bank statements to petitioner so that any error or discrepancy in the entries therein could be brought to the
banks attention at the earliest opportunity. But, petitioner failed to examine these bank statements not because he was
prevented by some cause in not doing so, but because he did not pay sufficient attention to the matter. Had he done so, he
could have been alerted to any anomaly committed against him.

Liability
SADAYA V. SEVILLA
19 SCRA 924

FACTS:
Sadaya, Sevilla and Varona signed solidarily a promissory note in favor of the bank. Varona was the only
one who received the proceeds of the note. Sadaya and Sevilla both signed as co-makers to
accommodate Varona. Thereafter, the bank collected from Sadaya. Varona failed to reimburse.
Consequently, Sevilla died and intestate estate proceedings were established. Sadaya filed a
creditors claim on his estate for the payment he made on the note. The administrator resisted the claim on
the ground that Sevilla didn't receive any proceeds of the loan. The trial court admitted the claim of
Sadaya though tis was reversed by the CA.

HELD:
Sadaya could have sought reimbursement from Varona, which is right and just as the latter was the
only one who received value for the note executed. There is an implied contract of indemnity between
Sadaya and Varona upon the formers payment of the obligation to the bank.
Surely enough, the obligations of Varona and Sevilla to Sadaya cannot be joint and several. For indeed,
had payment been made by Varona, Varona couldn't had reason to seek reimbursement from either
Sadaya or Sevilla. After all, the proceeds of the loan went to Varona alone.
On principle, a solidary accommodation makerwho made paymenthas the right to contribution,
from his co-accomodation maker, in the absence of agreement to the contrary between them, subject to
conditions imposed by law. This right springs from an implied promise to share equally the
burdens thay may ensue from their having consented to stamp their signatures on the promissory
note.
The following are the rules:
1. A joint and several accommodation maker of a negotiable promissory note may demand
from the principal debtor reimbursement for the amount that he paid to the payee
2. A joint and several accommodation maker who pays on the said promissory note may directly
demand reimbursement from his co-accommodation maker without first directing his action against the
principal debtor provided that
a. He made the payment by virtue of a judicial demand
b. A principal debtor is insolvent.
It was never shown that there was a judicial demand on Sadaya to pay the obligation and also, it was never
proven that Varona was insolvent. Thus, Sadaya cannot proceed against Sevilla for reimbursement.

Defense

Republic vs ebrada
FACTS:
February 27, 1963: Mauricia T. Ebrada, encashed Back Pay Check dated January
15, 1963 for P1,246.08 at Republic Bank
check was issued by the Bureau of Treasury
Bureau advised Republic Bank that the indorsement on the reverse side of the
check by the payee, "Martin Lorenzo" was a forgery because he died as of July 14,
1952 and requested a refund
July 11, 1966: Ebrada filed a Third-Party complaint against Adelaida
Dominguez who, in turn, filed on September 14, 1966 a Fourth-Party complaint
against Justina Tinio.
March 21, 1967: City Court of Manila favored Republic against Ebrada, for
Third-Party plaintiff against Adelaida Dominguez, and for Fourth-Party plaintiff
against Justina Tinio
CA: reversed Mauricia T. Ebrada claim against Adelaida Dominguez and
Domiguez against Justina Tinio
W/N: Ebrada should be held liable.
HELD: YES. Affirmed in toto.
under Section 65 of the Negotiable Instruments Law:
Every person negotiating an instrument by delivery or by qualified indorsement,
warrants:
(a) That the instrument is genuine and in all respects what it purports to be.
(b) That she has good title to it.
xxx xxx xxx
Every indorser who indorses without qualification warrants to all subsequent
holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.
Under action 23 of the Negotiable Instruments Law (Act 2031):
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instruments, or to give a discharge thereof against any party thereto, can be
acquired through or under such signature unless the party against whom it is

sought to enforce such right is precluded from setting up the forgery or want of
authority.
Martin Lorenzo (forged as original payee) > Ramon R. Lorenzo (2nd indorser) =
NO EFFECT
Ramon R. Lorenzo(2nd indorser)> Adelaida Dominguez (third indorser)>Adelaida
Dominguez to Ebrada who did not know of the forgery = valid and enforceable
barring any claim of forgery
drawee of a check can recover from the holder the money paid to him on a forged
instrument
not its duty to ascertain whether the signatures of the payee or indorsers are
genuine or not
indorser is supposed to warrant to the drawee that the signatures of the payee
and previous indorsers (NOT only holders in due course) are genuine
RATIONALE: . indorsers own credulity or recklessness, or misplaced confidence
was the sole cause of the loss. Why should he be permitted to shift the loss due to
his own fault in assuming the risk, upon the drawee, simply because of the
accidental circumstance that the drawee afterwards failed to detect the forgery
when the check was presented
Ebrada , upon receiving the check in question from Adelaida Dominguez, was
duty-bound to ascertain whether the check in question was genuine before
presenting it to plaintiff Bank for payment
Based on the doctrine from Great Eastern Life Ins. Co. v. Hongkong Shanghai Bank
(1922) , bank should suffer the loss when it paid the amount of the check in
question to Ebrada, but it has the remedy to recover from the Ebrada the amount
it paid
Ebrada immediately turning over to Adelaida Dominguez (Third-Party defendant
and the Fourth-Party plaintiff) who in turn handed the amount to Justina Tinio on
the same date would not exempt her from liability because by doing so, she acted
as an accommodation party in the check for which she is also liable under Section
29 of the Negotiable Instruments Law (Act 2031):
An accommodation party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person. Such a person is liable on the instrument
to a holder for value, notwithstanding such holder at the time of taking the
instrument knew him to be only an accommodation party.

Wong vs ca
Luis Wong is a collector of Limtong Press, Inc., a company which prints calendars. Wong was
assigned to collect check payments from LPI clients. One time, six of LPIs clients were not able to

give the check payments to Wong. Wong then made arrangements with LPI so that for the
meantime, Wong can use his personal checks to guarantee the calendar orders of the LPIs clients.
LPI however has a policy of not accepting personal checks of its agents. LPI instead proposed that
the personal checks should be used to cover Wongs debt with LPI which arose from unremitted
checks by Wong in the past. Wong agreed. So he issued 6 checks dated December 30, 1985.
Before the maturity of the checks, Wong persuaded LPI not to deposit the checks because he said
hell be replacing them within 30 days. LPI complied however Wong reneged on the payment. On
June 5, 1986 or 157 days from date of issue, LPI presented the check to RCBC but the checks were
dishonored (account closed). On June 20, 1986, LPI sent Wong a notice of dishonor. Wong failed to
make good the amount of the checks within five banking days from his receipt of the notice. LPI
then sued Wong for violations of Batas Pambansa Blg. 22.
Among others, Wong argued that hes not guilty of the crime of charged because one of the
elements of the crime is missing, that is, prima facie presumption of knowledge of lack of funds
against the drawer. According to Wong, this element is lost by reason of the belated deposit of the
checks by LPI which was 157 days after the checks were issued; that he is not expected to keep his
bank account active beyond the 90-day period 90 days being the period required for the prima
faciepresumption of knowledge of lack of fund to arise.
ISSUE: Whether or not Wong is guilty of the crime charged.
HELD: Yes. Wong is guilty of violating BP 22. The elements of violation of BP 22 pertinent to this
case are:
1. The making, drawing and issuance of any check to apply for account or for value;
2. The knowledge of the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment; and
3. The subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop
payment.
Under the second element, the presumption of knowledge of the insufficiency arises if the check is
presented within 90 days from the date of issue of the check. This presumption is lost, as in the
case at bar, by failure of LPI to present it within 90 days. But this does not mean that the second
element was not attendant with respect to Wong. The presumption is lost but lack of knowledge can
still be proven, LPI did not deposit the checks because of the reassurance of Wong that he would
issue new checks. Upon his failure to do so, LPI was constrained to deposit the said checks. After
the checks were dishonored, Wong was duly notified of such fact but failed to make arrangements
for full payment within five (5) banking days thereof. There is, on record, sufficient evidence that
Wong had knowledge of the insufficiency of his funds in or credit with the drawee bank at the time of
issuance of the checks.
The Supreme Court also noted that under Section 186 of the Negotiable Instruments Law, a check

must be presented for payment within a reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the loss caused by the delay. By current banking
practice, a check becomes stale after more than six (6) months, or 180 days. LPI deposited the
checks 157 days after the date of the check. Hence said checks cannot be considered stale.

ITHE INTERNATIONAL CORPORATE BANK V. SPOUSES GUECO

351 SCRA 516

FACTS:
Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a car. In consideration thereof,
the debtors executed PNs, and a chattel mortgage was made over the car. As the usual story
goes, the spouses defaulted in payment of their obligations and despite the lowering of the
amount to be paid, they still failed to pay. Thereafter, they tendered a managers check in favor
of the bank. Nonetheless, the car was still detained for the spouses refused to sign the joint motion to
dismiss. The bank averred that the joint motion to dismiss is part of standard office procedure to
preclude the filing of other claims. Because of this, the spouses filed an action for damages against
the bank. And by the time the case was instituted, the check had become stale in the hands of the bank.

HELD:
The main issue though unrelated to Negotiable Instruments Law in this case was whether or not the signing
of the joint motion to dismiss a part of the compromise agreement between the spouses and the bank. The
answer is no, it is not a part of the compromise agreement entered by the parties. And thus, the signing is
dispensible in releasing the car to the spouses. And on the ancillary issue of the case, which is the relevant
issue for the subject, whether or not the spouses should replace the check they paid to the bank after it
became stale, the answer is yes. It appeared that the check has not been encashed. The delivery of
the managers check did not constitute payment. The original obligation to pay still exists. Indeed, the
circumstances that caused the non-presentment of the check should be considered to determine
who should bear the loss. In this case, ICB held on the check and refused to encash the same because of
the controversy surrounding the signing of the joint motion to dismiss. There is no bad faith
or negligence on the part of ICB.
A stale check is one which has not been presented for payment within a reasonable time after its
issue. It is valueless and, therefore, should not be paid. A check should be presented for payment

within a reasonable time after its issue. Here, what is involved is a managers check, which is
essentially a banks own check and may be treated as a PN with the bank as a maker. Even assuming that
presentment is needed, failure to present for payment within a reasonable time will result to the
discharge of the drawer only to the extent of the loss caused by the delaybut here there is
no loss sustained. Still, such failure to present on time does not wipe out liability.

PACIFICO B. ARCEO, JR vs. PEOPLE OF THE PHILIPPINES. G.R. No. 142641. July 17, 2006.
FACTS:
Pacifico Arceo obtained a loan from Josefino Cenizal. He then issued a check in favor of Cenizal, in which he
promised verbally seven times that he would replace it with cash. After not replacing the check, he encashed the
check but was dishonored due to insufficient funds.
Cenizal went to Arceo's house to inform him of the dishonor but he was not around anymore so he went to Arceo's
lawyer and gave him a letter giving him three days to pay the check. When Arceo failed, Cenizal charged him in
violation of BP 22.
The lower court found him guilty.
Arceo contends that he should not be held liable because it was presented beyond the 90-day period provided
under the law; that he only given three days to pay and not five banking days as per law; and that he paid his
obligation.
ISSUE: Whether Arceo is guilty.
RULING:
The SC denied Arceo's petition. The SC held that the life of a check is six months. Cenizal presented the check
within four months of issuance. The 90-day period in the law is not an element of the offense. Arceo cannot claim
that he was not given five banking days (the rule is three), because he still remained unpaid after five days of his
receipt of dishonor. Lastly, his claim that he paid the obligation was only mere allegation as there was no proof of
his payment and that the check still remained on Arceo.

Allied bank vs. ca

FACTS:
January 6, 1981: Allied Bank (Allied) purchased Export Bill of $20,085 from G.G.
Sportswear Mfg. Corporation (GGS)
The bill, drawn under a letter of credit covered Men's Valvoline Training Suit that was in
transit to West Germany

The export bill was issued by Chekiang First Bank Ltd., Hongkong.
With the purchase of the bill, ALLIED credited GGS the peso equivalent of the bill
amounting to P151,474.52
Nari Gidwani and Alcron International Ltd. (Alcron) executed their respective Letters of
Guaranty, holding themselves liable on the export bill if it should be dishonored or retired
by the drawee for any reason.
spouses Leon and Leticia de Villa and Nari Gidwani also executed a Continuing
Guaranty/Comprehensive Surety (surety), guaranteeing payment of any and all such
credit accommodations which ALLIED may extend to GGS
When ALLIED negotiated the export bill to Chekiang, payment was refused due to some
material discrepancies in the documents submitted by GGS relative to the exportation
covered by the letter of credit.
ALLIED demanded payment
GGS and Nari Gidwani: signed blank forms of the Letters of Guaranty and the Surety, and
the blanks were only filled up by ALLIED after they had affixed their signatures. They also
added that the documents did not cover the transaction involving the subject export bill.
spouses de Villa: not aware of the existence of the export bill; they signed blank forms of
the surety; and averred that the guaranty was not meant to secure the export bill
Alcron: foreign corporation doing business in the Philippines, its branch in the Philippines
is merely a liaison office; neither its liaison office in the Philippines nor its then
representative, Hans-Joachim Schloer, had the authority to issue Letters of Guaranty for
and in behalf of local entities and persons
RTC: in favor of Allied
CA: modified holding GGS liable to reimburse Allied, but it exonerated the guarantors
from their liabilities under the Letters of Guaranty
ISSUE: W/N Gidwani, Alcron and Spouses Villa can be held jointly and severally liable
becuase of their capacity as guarantors and surety in the absence of protest on the bill in
accordance with Section 152 of the Negotiable Instruments Law?
HELD: YES. CA modified. Nari Gidwani, and Spouses Leon and Leticia de Villa are jointly and
severally liable together with G.G. Sportswear
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill
the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be observed. In such case the contract is called a
suretyship.
Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by
respondents, is not pertinent to this case.
There are well-defined distinctions between the contract of an indorser and that of a

guarantor/surety of a commercial paper, which is what is involved in this case.

The contract of indorsement is primarily that of transfer, while the contract of guaranty is
that of personal security
The liability of a guarantor/surety is broader than that of an indorser.
Unless the bill is promptly presented for payment at maturity and due notice of dishonor
given to the indorser within a reasonable time, he will be discharged from liability
thereon. On the other hand, except where required by the provisions of the contract of
suretyship, a demand or notice of default is not required to fix the surety's liability.
Therefore, no protest on the export bill is necessary to charge all the respondents jointly
and severally liable
having affixed their consenting signatures in several documents executed at different
times, it is safe to presume that they had full knowledge of its terms and conditions,
hence, they are precluded from asserting ignorance of the legal effects of the undertaking
they assumed thereunder

bataan vs ca
FACTS:
Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes
purchased from King Tim Pua George (George King) 2,000 bales of tobacco leaf to be delivered starting October
1978.
July 13, 1978: it issued crossed checks post dated sometime in March 1979 in the total amount of P820K
George represented that he would complete delivery w/in 3 months from Dec 5 1978 so BCCFI agreed to
purchase additional 2,500 bales of tobacco leaves, despite the previous failure in delivery
It issued post dated crossed checks in the total amount of P1.1M payable sometime in September 1979.
July 19, 1978: George sold to SIHI at a discount check amounting to P164K, post dated March 31, 1979, drawn
by BCCFI w/ George as payee.
December 19 and 26, 1978: George sold 2 checks both in the amount of P100K, post dated
September 15 & 30, 1979 respectively, drawn by BCCFI w/ George as payee
Upon failure to deliver, BCCFI issued on March 30, 1979 and September 14 & 28, 1979 a stop
payment order for all checks
SIHI failing to claim, filed a claim against BCCFI
RTC: SIHI = holder in due course. Non-inclusion of Gearoge as party is immaterial to the case
ISSUE: W/N SIHI is a holder in due course beign a second indorser and a holder of crossed checks
HELD: YES. GRANTED. RTC reversed.
Sec. 52
1. That it is complete and regular upon its face
2. That he became the holder of it before it was overdue, and without notice that it had been previously

dishonored, if such was the fact

3. That he took it in good faith and for value
4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title
of the person negotiating it
Sec. 59
every holder is deemed prima facie a holder in due course
However, when it is shown that the title of any person who has negotiated the instrument was defective, the
burden is on the holder to prove that he or some person under whom he claims, acquired the title as holder in due
course.
effect of crossing of a check
1. check may not be encashed but only deposited in the bank
2. check may be negotiated only once to one who has an account with a bank
3. act of crossing the check serves as warning to the holder that the check has been
issued for a definite purpose - he must inquire if he has received the check pursuant to that purpose,
otherwise, he is not a holder in due course
crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser's
title to the check or the nature of his possession - failure = guilty of gross negligence amounting to legal absence
of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law
SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks. However,
that SIHI could not recover from the checks. The only disadvantage of a holder who is not a holder in due course
is that the instrument is subject to defenses as if it were non-negotiable. Hence, SIHI can collect from the
immediate indorser, George